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Diversity, Gender

Women in the Boardroom Mean Better Returns, More Stability


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By Melissa J. Anderson

According to the latest report on the subject of gender diversity in the boardroom, female directors may provide more stability and long-term vision for a company during a volatile market.

The report explains, “…the evidence suggests that more balance on the board brings less volatility and more balance through the cycle.”

Credit Suisse’s extensive report, “Gender Diversity and Corporate Performance” showed a correlation between women directors and outsized results. Based on the study of almost 2,400 companies, firms with one or more women on their boards performed better in terms of share price performance than those with no women. Moreover, during the unpredictable market between 2008 and 2011, the women-effect was even more pronounced.

Urs Rohner, Credit Suisse’s Chariman of the Board of Directors and Brady W. Dougan, Chief Executie Officer, write, “Ultimately, the trend towards greater gender diversity within management looks set to continue – and going forward will provide another metric for those scrutinizing corporate governance. Our research suggests that a specific consequence of greater board diversity for shareholders is one of reduced volatility – manifested as enhanced stability in corporate performance and in share price returns.”

Credit Suisse’s research provides yet more evidence to add to the business case for gender diversity. It also provides a definitive list of global boardroom gender diversity initiatives, thorough analysis of several potential benefits and causes for the business case for diversity, and suggestions on how to advance the cause of gender diversity in the corporate space.

Investing in Women

In their opening letter for the report, Rohner and Dougan describe women as an asset that corporations – and shareholders – should invest in. “While it is difficult to demonstrate definitive proof, no one can argue that the results in this report are not striking. In testing the performance of 2,360 companies globally over the last six years, our analysis shows that it would on average have been better to have invested in corporates with women on their management boards than in those without.”

The authors of the report, Richard Kersley, Head of Global Research Product, Credit Suisse Investment Banking and Michael O’Sullivan, Head of Portfolio Strategy & Thematic Research, Credit Suisse Private Banking, explain, “Our key finding is that, in a like-for-like comparison, companies with at least one woman on the board would have outperformed in terms of share price performance, those with no women on the board over the course of the past six years.”

But, they continue, most of that outperformance is in the volatile post-2008 time period. “In other words, stocks with greater gender diversity on their boards generally look defensive: they tend to perform best when markets are falling, deliver higher average ROEs through the cycle, exhibit less volatility in earnings and typically have lower gearing ratios.”

Causes and Solutions

The report outlines a few potential reasons for the business benefits of gender diversity on boards – for example, that gender diversity is a mark of a better company, that diversity leads to better effort on behalf of all board members, or that companies with more diversity have access to better talent.

One of the more interesting suggestions is that diversity simply results in better performance because everyone tries harder. Kersley and O’Sullivan write:

“…it is not necessarily the performance of the minority individuals that have enhanced the result. Rather, it is the fact that the majority group improves its own performance in response to minority involvement. Simply put, nobody wants to look bad in front of a stranger. Hence, the greater the effort and attention to detail, the better average outcome in a more diverse environment.”

Studies have also shown that diversity enables more thorough discussion as well as a more civil boardroom environment. The authors also emphasize the more “risk averse” nature of women as a potential benefit for boardrooms.

Overall, the authors suggest that gender diversity is a growing trend around the world. By the end of 2005, only 41% of MSCI ACWI stocks had women on their boards. But by the end of 2011, the percentage increased to 59%. Credit Suisse predicts that there will be more companies with women in the boardroom in the coming years.

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